Psychological Pricing Is a Strategy Which Is Based on the Idea That Prices of Certain Products Create a Greater Psychological Impact in the Mind of a Consumer. Pricing Strategies Are Important Components of Growing Your E-Commerce Business and Increasing ROI
Warren Buffett had quipped, “The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. ”
Pricing strategies are important for any business to succeed. An unprecedented growth in online consumerism has led to proportional rise in e-commerce businesses. Pricing products or services act as major influencers in a consumer’s preference within a buying process. Pricing an item too low may increase chances of losing a significant profit. Whereas pricing an item at a higher price may cause customers to alienate themselves from the brand.
Some e-commerce websites tend to have products that are unique and have a winning streak associated with it. Yet, the efforts may be in vain if you don’t have the power to convince customers to buy the product. Why would they buy your product? Attractive prices and features bundled together may seem like a good place to start!
What is E-commerce Psychological Pricing?
Implementing strategies which can help increase profits and conversion rates can influence people to buy products and be frequent customers.
E-commerce psychological pricing is a concept which uses the power of a price tag to influence people during a decision making process. Creating prices which help in pandering a consumer’s beliefs towards making the purchase decision successful is what sums up to be an e-commerce pricing initiative.
Implementing psychological pricing for many e-commerce owners is the source of revenue and profits which can then be layered across an entire business.
In What Ways Can You Tackle E-commerce Pricing?
Consumers have an inclination towards responding to certain types of pricing techniques. Appreciating how to strategically price products and run successful promotions in this world of e-commerce sales is the key to success. So if you want your consumers to forgo their inhibitions and make the right choice of purchase, following are the tips that can be implemented for the same;
The word “free” brings about a lot of exciting emotions and entices people to buy products, though they may not have intended to buy any in the first place. The BOGOF (Buy One Get One Free) concept has always been around in brick-and-mortar stores, but applying the same to e-commerce stores is known to be just as successful.
Offering free delivery is another added bonus. 28% of shoppers are known to abandon their shopping carts due to unexpected delivery charges. Amazon Prime is an excellent example of offering free delivery.
- The Effect of Number 9
Generally, consumers are known to prefer paying less for products and often associate prices with discounts and bargains. Knowing the power of 99 is also what psychologists call the “left-digit effect” wherein consumers see the price and round it down, instead of rounding it up.
This is the reason companies like Apple price their products at $129.99 instead of $1300. The $0.01 makes a positive difference in sales surprisingly. Ending a commodity’s price at 9 would be more appealing to shoppers though they may not even be looking for discounts, yet they would go ahead and finalize a purchase.
- Odd Prices
Prices of products which end in odd numbers such as 3,5 and 7 appear to be a calculated approach by a retailer towards a consumer. Using such pricing tactics where the odd number is given credit influences a customer to think that this is the fairest it can get in terms of pricing offered. Using odd pricing on a product launch will be beneficial in experimenting with the same and then confirming the results.
- Pricing with Comparison
Comparison pricing is a clever marketing technique which is used for two products that are the same but have different features. For example, placing an oven of $275 next to a different model priced at $415 would make a customer feel like going for the cheaper one despite them being similar. Thus sales would nearly double.
While launching a new product, considering comparison pricing may be a useful technique in increasing sales and generating profits.
- Premium Pricing
Taking the example of premium products and premium pricing would mean going down memory lane and considering why people went for Apple products despite it being expensive? Premium pricing works for products and companies that want to be set apart from the rest. Craving to be a part of such an elite cause would mean pricing products at an extraordinary worth. In a customer’s mind expensive = worth.
- Useless Price Points
Useless price points are psychological pricing strategies which push a customer towards certain products when it is based on a comparison theory. This works strongly for packaging prices. For example;
Pricing A Product at $50
Pricing B Product at $100
Pricing A and B Products for $100
How does this clarify as a useless price point? Well, Product B is a useless product but combined with Product A you can perhaps get value for both at the cost of one.
So this leads back to psychological pricing techniques where you can get the perceived value of a product changed.
- Context Pricing
Is a $1000 a lot of money? To some, yes but to the rest? Not too much. Pricing matters in the context you choose to portray it. If a person is selling a designer T-shirt at $1200, it would obviously seem like a lot of money. But when you compare buying a T-shirt from a thrift store, it would make sense to spend $1200 for a T-shirt from a designer store.
Contextual prices differ and make a significant change in the eyes of a consumer. Hence, placing product prices at a comparison rate makes a shift in the buying process, thus inducing a customer to actually go forward and make the purchase.
- Fragmented Pricing
Paying $500 as a full amount for a year may seem a lot in comparison to $40 in installments. Placing pricing in installments is a good technique for subscription-based strategies. Fragmented pricing is a good strategy for products which are higher-priced. A consumer will be tempted to buy a product which can be bought in frequent time-spaces instead of a one-time full investment. More risk = lesser chances a product would sell.
Psychological pricing techniques play a heavy role in influencing customers to make a purchasing decision. Taking into account a consumer’s psychological beliefs and then gratifying their desires by offering products that are sought after is an invaluable concept for the growth of an e-commerce store. Using the above pricing techniques will be potentially beneficial towards the overall performance and ROI of a firm.